Testing times for foreign fast-food chains

Meat scandal exposes loopholes in quality control and supervision

A meat supplier’s practice of selling expired chicken and beef to top fast-food chains in China has highlighted loopholes in ensuring quality and safety in the food supply chain in the country, pushing companies to be more proactive in auditing and testing, experts said.

The Shanghai Food and Drug Administration confirmed on Tuesday that the Shanghai Husi Food Co Ltd was found in violation of the law, after five batches (5,108 boxes) of their chicken, beef and pork were discovered to have problems.

The meat supplier, wholly owned by Chicago-based food company OSI Group LLC, sells meat to nine fast-food chains, including McDonald’s Corp and KFC parent Yum Brands Inc, coffee chain Starbucks Corp and Burger King Worldwide Inc.

The involved brands have halted using products from Husi. McDonald’s and Yum said they will resume purchases when they can ensure the food complies with laws and standards. Neither said what suppliers they would use in the meantime.

The scandal came as multinational food producers and retailers have expanded their outlets and factories aggressively in China, one of their most important markets.

Yum, the parent company for KFC and Pizza Hut, has opened 6,387 outlets in China so far, and it had a market share of about 5 percent in 2013.

McDonald’s has 2,000 outlets, which accounted for 2.6 percent of the fast-food market last year. About half of Yum’s revenue and 35 percent of its operating profits came from the Chinese market last year.

But their rapid expansion was not accompanied by a similar improvement in managerial capacity and training, resulting in continued food safety scandals, said Zhao Ping, deputy director of the Chinese Academy of International Trade and Economic Cooperation, which is under the Ministry of Commerce.

Fast-food chains, which have developed quickly in China in recent years, many through franchising, have been weak in implementing the industry standards and ethical principles that they follow in developed markets, she said.

“Multinationals should require their operations in China to follow the same standards in terms of food safety as in developed markets,” Zhao said. “It is an excuse for food producers to lower their standards only because local regulations are loose and food safety and security awareness are weaker.”

Companies should invest in internal training and set up appraisal systems that involve food safety issues, she said.

Zhao said fast-food restaurants are also responsible for unsafe food purchased at their outlets, because they should have supply chain controls at their logistics centers that deal with this issue before products are shipped to the stores. Even when products are labeled as qualified, fast-food chains should send samples for third-party testing.

The latest incident is “a wake-up call for Chinese consumers, who have long believed that foreign fast-food brands follow higher standards than domestic ones”, Zhao said.

These fast-food brands should be prepared to lose a number of loyal customers, she added.

The incident is not a simple case of negligence by an individual company but an exposure of the systemic risk in the food supply chain, which damages consumer trust and brand loyalty, she said.

Ben Cavender, an analyst at Shanghai-based China Market Research, said the reason why it appears that multinational food companies are involved in more misconduct in China than in other markets is because most of the markets are not as big or fast-growing as the market here in China.

In many ways, suppliers in China are still “professionalizing” their operations and do not always hold same standards that apply in Western Europe and the United States, he said.

Because of all these issues, it is difficult for foreign-invested suppliers to maintain quality and offer consumers safe products the way they should, even though the supplier situation has improved a lot, he said.

Hu Min, leader of the professional team of the China Federation of Logistics and Purchasing and its specialized committee for purchasing and supply chain management, said that food safety testing standards and frequency should be improved at all stages of the logistics and supply chains.

In recent years, many international retailers have learned a lesson and put more resources into food testing to prevent food safety scandals.

Wal-Mart Stores Inc came under the spotlight early this year after a supplier’s donkey meat was found to contain fox meat. It also came under fire for selling expired duck meat in 2011.

Walmart China said the company will increase its investment in food safety to more than 300 million yuan ($48.6 million) between 2013 and 2015, focusing on Increasing supplier audits and tests for suppliers.

It will increase DNA testing on meat products and spend more on facility audits and inspections of primary producers. The number of facility audits and inspections of primary producers was up 50 percent in 2013 compared with a year earlier, it said.

More sectors open to foreign investors in FTZ

Shanghai on Tuesday shortened the negative list that bars overseas investment into some sectors in the Shanghai free trade zone (FTZ), a policy move designed to lower the entry barriers for foreign investors into the Chinese market, but analysts suggested that the focus should be on the rules for a wider market.

The newly revised version of the negative list cut the number of bans and restrictions on foreign investment in the FTZ to 139 items from the previous 190 items.

One of the biggest changes is made in the financial sector. In the previous version of the negative list, foreign investors were not fully allowed to participate in the banking industry and the services offered by finance, trust and currency brokerage companies. But in the revised version, foreign investors can do business in these sectors as long as they abide by the related regulations.

Other sectors that are newly opened to foreign investors include oil refinery, nonferrous metal smelting and the wholesale market, according to a statement on the website of the China (Shanghai) Pilot Free Trade Zone.

The easing of restrictions is in line with the market expectations, Zhang Yugui, director of the School of Economics and Finance at the Shanghai International Studies University, told the Global Times on Tuesday.

But Zhang also noted that foreign investors should have more access to the services industry, as core industries such as the manufacturing sector are still firmly controlled.

Shanghai FTZ, launched in September 2013, was seen as a testing ground for financial reforms, commodities trading and logistics.

Shanghai adopts a “negative list” approach for foreign investment in the zone, which ensures foreign companies can invest without any restriction if a sector is not on the list.

The number of bans or restrictions that the new negative list has lifted for foreign investment is not the central issue. What matters more is whether what has been achieved in the FTZ can be extended to the whole country, analysts said.

“At present, the newly opened sectors that are excluded from the shortened negative list actually don’t attract much interest from foreign investors, and the policy is only confined to the free trade zone. What overseas investors value the most is the massive market potential in the whole country,” Qiang Yongchang, director of the International Trade Study Center at Fudan University, said on Tuesday.

The actual impact of the policy innovations carried out in the FTZ on the dynamics of the entire Chinese economy is the fundamental issue, instead of the specific policy privileges, Qian pointed out. The opening of the sectors is an unprecedented move in China, and where the line should be drawn for the restrictions in the future will require time and patience to figure out, he said.

The People’s Bank of China has held an internal discussion and expects the rules related to the negative list could be expanded beyond the FTZ by the end of this year or early next year, Zhang said without elaborating.

“It’s just an anticipation for now, and whether it will be achieved depends on China’s risk control ability, as an open capital market is vulnerable to arbitrage,” Zhang noted.

“The reduction to the scope of the negative list re-establishes European companies’ confidence in China’s commitment to the China (Shanghai) Pilot Free Trade Zone,” said Stefan Sack, vice president of the European Chamber and Chairman of its Shanghai Chapter in a statement e-mailed to the Global Times Tuesday.

There is, however, still great room for further eliminating many of the remaining barriers to foreign investment in the zone that would bring benefit for both European business and China, Sack said.

Shanghai court accepts case against Apple Inc

The Shanghai No 1 Intermediate People’s Court yesterday accepted a civil suit from a local company against United States tech giant Apple Inc for trademark infringement in relation to a cellphone app.

The case was filed after the plaintiff, Shanghai Homevv Co, discovered Apple was selling an online shopping program via its app store that carried Homevv’s registered trademark and referenced its website.

The product, however, had been produced by Shanghai Woshang Information Technology Co, which registered it with the Apple store.

Following the discovery, Homevv last month made several requests for Apple to remove the program from its store, but received no reply, Ma Yongjian, a lawyer representing the plaintiff, told Shanghai Daily.

Apple was unavailable for comment yesterday.

Homevv said it registered a trademark for its website in 2012 and developed the application earlier this year.

It said it wanted to have the product featured in the Apple store and made three approaches to the company in April and May. Each time, the app was rejected, with the US company saying on the third occasion that the product already existed, Ma said.

It was then that Homevv discovered the alleged imposter, and decided to take legal action, he said.

The company is demanding more than 100 million yuan (US$16 million) in compensation from Apple and Shanghai Woshang Information Technology Co, the court said.

It is also seeking public apologies from the pair and has requested they stop infringing its trademarks. Homevv also asked Apple to remove the app from its store and told Woshang to destroy it.

The court has yet to set a date for the hearing.

Tencent, 58.com partner up

Tencent Holdings, China’s largest Internet company by market share, announced Friday that it is buying a 19.9 percent stake in the Chinese online marketplace 58.com Inc for $736 million, an important move analysts said for Tencent to promote its online-to-offline (O2O) connection of businesses.

Unlike the traditionally separate business models of off-line shopping and e-commerce, O2O is a new model that makes online payment a necessary step in a wide range of off-line services.

Yao Jinbo, founder and Chief Executive Officer of 58.com, confirmed on his Sina Weibo late Friday that the strategic cooperation project was completed within 10 days without disclosing further information.

Shanghai may launch international gold exchange in FTZ

Shanghai may launch an international trading board for gold in the China (Shanghai) pilot Free Trade Zone this quarter.

The new trading board in the FTZ is expected to attract foreign participants as China hopes to have a bigger influence on global gold prices.

The FTZ is expected to attract a gold inventory of 1,000 tons.

Gold sales rose to 323 tons in the first quarter, up 0.8 percent from a year earlier, local media reports said citing the Shanghai Gold Exchange.

Xu Luode, secretary-general of the bourse, said earlier that the international board would adopt Shanghai Gold — a spot gold trading mechanism similar to the Loco London Gold.

Clariant plans R&D center in Shanghai

Swiss specialty chemicals company Clariant said on Wednesday that it plans to establish a research and development center in Shanghai.

The R&D Center, expected to be operational by 2015, is intended to cater to the burgeoning Chinese specialty chemicals industry, which Clariant has been serving since 2011, by providing enhanced technical service and developing catalytic solutions tailored to China’s requirements. The company’s previous ventures in China have focused on coal-to-methanol catalysts.

The center will focus on coal-to-chemicals and specialty applications while developing new catalysts for hydrogenation applications and supporting Clariant’s pre-existing Chinese production sites.

German state honors Huawei for investments

Chinese tech company Huawei received Monday the NRW.INVEST Award in the western German city of Duesseldorf for its outstanding investments in the German state of North Rhine-Westphalia (NRW).

For the 10th time, NRW Economics Ministry and NRW.INVEST, the state’s economic development agency that deals with support for foreign investors, have presented the NRW.INVEST Award.

With this award, NRW honors exemplary investments at the business location. This year, three companies received awards, including Huawei, the American package delivery company UPS and the French company Air Liquide.

North Rhine-Westphalia is a leading location in Germany for foreign investments. According to NRW Economics Minister Garrelt Duin, about a quarter of investment projects in Germany flew to the state in 2013.

“Engine of the development is Asia,” NRW.INVEST CEO Petra Wassner said at Monday’s presentation ceremony.

According to NRW.INVEST, the number of foreign investment projects in NRW jumped to 236 in 2013, a 12 percent increase compared to the previous year. Again, China led the country ranking with 63 investment projects.

Huawei, a Chinese multinational networking and telecommunications equipment and services company, has been making large investments in NRW’s capital city of Duesseldorf. Currently, 650 employees are working in the company’s headquarters for Western Europe and Germany which is located in Duesseldorf.

Changan Ford moves into new phase of rapid development

Changan Ford stepped into a new phase in capitalizing on China’s automobile market when the company announced Thursday the opening of 88 new dealers to join its massive dealer points around China.

A grand opening ceremony held in Shanghai featuring traditional Chinese performances like drums and lion dancing mirrored the automobile giant’s Chinese ambition – keep striding confidently forward in the world’s largest automobile market.

Changan Ford has successfully introduced a number of new models including the Ford New Focus and Ford Kuga.

In 2013, Changan Ford sold an accumulative total of 678,951 units, a year-on-year growth of 62 percent over 2012.

In the first five months of 2014, the Changan Ford lineup had sales of 330,771 units, with an accumulative year-on-year increase of 43 percent.

Consumer demand, resulting in the sales increase, created Changan Ford’s need for the expansion of its dealer points.

With the newly launched 88 dealers, the total number of Changan Ford’s dealer points in China rises to 750, and the figure is still growing.

“The newly-opened 88 dealers allow us to better serve our growing Chinese customer base and improve their ownership experience. With the growth momentum, we expect to exceed 800 dealer points in China by the end of 2014,” said Marin Burela, president and CEO of Changan Ford Automobile Co.

As vehicles in first-tier cities started to be oversupplied, Changan Ford mapped out one-third of its dealer points deep into the less developed central and western regions in China.

About 75 percent of dealer points are based in small cities, which the company said represents the growing customer demand in these areas.

What drives the expanding of dealer points is an ever growing manufacturing capacity.

“We will launch our third plant in Chongqing in the future and you also know that our Hangzhou plant will also go into production in 2015, and both of these investments are being made strategically to ensure that we meet demand with supply in the area where we see the market is growing, ” Burela told reporters during the interview.

Germany bullish on investments in China

Economic rebalancing is likely to usher in a “new era” of German investment in China, said Lothar Herrmann, chairman of the German Chamber, after the German Business Confidence Survey 2014 launch on Wednesday.

German companies operating in China reported robust performance and relative optimism for 2014 despite the economic slowdown.

“We do believe at the German Chamber that there is optimism because our technology can contribute to the next level of development in China,” said Herrmann.

German investment going forward is expected to be driven by its technologies in automation, digitalization and renewable energy, which are seem as possible solutions to the challenges facing China during its economic rebalancing.

Of the 417 members that participated in the survey, 23 percent expect to exceed their business targets for this year compared to only 17 percent expecting to not to achieve or only partly achieve their targets, up 9 percent and down 4 percent respectively from 2013.

Forty-nine percent of the companies expect economic conditions to improve, with 75 percent of the automotive sector maintaining a positive outlook.

The majority also welcomed reforms with 70 percent of companies viewing the central government’s reform agenda as having potentially positive effects on their businesses.

However, this positive sentiment is yet to translate into investment as 48.6 percent of companies stated that initiated policies will have no influence on their investment decisions.

Human resources issues still remain the biggest challenge to German businesses operating in China. However, human resource issues are on the decline as German companies appear to have gained experience in how to deal with the challenges of doing business in China.